Good morning, ladies and gentlemen, and welcome to the Monro Muffler Brake's First Quarter Fiscal 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions]. And as a reminder, ladies and gentlemen this conference call is being recorded and may not be reproduced in whole or in part without permission from the company. I'd now like to introduce Ms. Effie Veres of FTI Consulting. Please go ahead.

Thank you. Hello, everyone and thank you for joining us on this morning's call. I would like to remind you that on this morning's call, management may reiterate forward-looking statements made in today's release. In accordance with the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995, I would like to call your attention to the risks and uncertainties related to these statements, which are more fully described in the press release and the company's filings with the Securities and Exchange Commission. These risks and uncertainties include but are not necessarily limited to uncertainties affecting retail generally such as consumer confidence and demand for auto repair; risks relating to leverage and debt service, including sensitivity to fluctuations in interest rates; dependence on and competition within the primary markets in which the company's stores are located, and the need for and costs associated with store renovations and other capital expenditures. The company undertakes no obligation to release publicly any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof, or to reflect the occurrence of unanticipated events. The inclusion of any statement in this call does not constitute an admission by Monro or any other person that the events, or circumstances described in such statements are material. With these formalities out of the way, I'd like to turn the call over to Monro's President and Chief Executive Officer, John Van Heel. John, you may begin.

Thanks, Effie. Good morning and thank you for joining us on today's call. We are pleased that you are with us to discuss our performance for the first quarter of fiscal 2018. Before I turn to our results for the quarter, I would like to welcome Brett Ponton, who is joining us on today's call. Welcome Brett. Brett will join Monro as President on August 1st and assume the role of CEO on October 2. Brett has over 20 years of experience in our industry managing and growing both franchise and company-operated stores. In addition to his operational experience, Brett also brings additional consumer marketing expertise to Monro which I believe will complement our team's current efforts to improve our in-store and online customer experience. I can tell you that he has made a strong initial impression on our associates and I'm pleased he is with us today on this call. Brett will share his thoughts on Monro and our industry in a moment. But first Brian D'Ambrosia, our Chief Financial Officer, and I will review our first quarter results and our updated outlook for the year. The outperformance of our recent acquisitions, positive comparable store sales, combined with our continued focus on margin improvement drove first quarter earnings per share of $0.55 at the high-end of our guidance range after adjusting for $0.02 in management transition cost. The 18% sales increase in the quarter exceeded the high-end of our guidance range and was driven by better than expected top-line performance from our recent acquisition. The comparable store sales increase of 1.4% in the quarter was driven by higher overall ticket of more than 3% in both tire and service categories. Strong sales performance in brakes front end and shocks was offset by a slight decline in alignments with flat…

Thank you, John. Sales for the quarter increased 18.4% and $43.2 million. New stores defined as stores opened or acquired after March 26, 2016, added $41.5 million including sales of $34.8 million from fiscal 2017 acquisitions. Comparable store sales increased 1.4%. Additionally, there was a decrease in sales from closed stores of approximately $1.3 million. There were 90 selling days in both the current quarter and the prior year's first quarter. At June 24, 2017, the company had 1,119 company-operated stores and 114 franchise locations as compared with 1,064 company-operated stores and 134 franchise locations at June 25, 2016. During the quarter ended June 2017, we added seven company-operated stores and closed six stores. Gross profit for the quarter ended June 2017 was $112.9 million or 40.5% of sales as compared with $98.1 million or 41.7% of sales for the quarter ended June 2016. The decrease in gross margin for the quarter was primarily due to the sales mix shift from recent acquisitions. During fiscal 2017, we acquired certain tire and automotive repair locations that serve commercial customers and sell wholesale tires to customers to retail. These locations conduct tire and automotive repair activities that are similar to our retail location other than with respect to the sales mix resulting from the sale of commercial tires as well as the gross margin of the wholesale location being different primarily due to the higher mix of tires sold and the effect of those tire sales do not include installations or other tire related services that are more common at other location. On a consolidated basis, labor cost decreased as a percentage of sales due to the impact of the sales mix shift from recent acquisition. Distribution and occupancy costs decreased moderately as a percentage of sales from the prior year as…

Thanks Brian. I'm very excited to join the Monro team. I recognize that opportunities like this do not come along very often and I'm thrilled to be here. As John mentioned, I have been with Tire and Auto Service industry now for over 20 years including leading Goodyear's company-owned tire and service centers followed by my role of CEO at Heartland Automotive, the nation's largest operator of Jiffy Lubes where we followed an aggressive acquisition strategy and most recently as CEO of American Driveline Systems, the parent company that is the franchisor for over 700 AAMCO and Cottman Transmission & Total Car Care locations. I believe my experience in running three automotive service formats provides me with a strong foundation as I join the Monro team. I'm very optimistic about the future of the automotive services industry and I believe Monro is very well positioned to capitalize on the very positive industry trends we will see over the next few years. The total vehicles in operation are expected to grow significantly over the next five years with the vast majority of that growth coming from vehicles in our sweet spot of six years or over. This is in contrast to the pressure on this group over the past several years including a significant decline in the number of vehicles six to 10 years old. We expect that this trend in vehicles of six years old and older will benefit our fiscal 2019 and beyond in particular while this year remains pressured. Another important driver of that vehicles 13 years old and older accounted for about 30% of Monro's traffic in the first quarter of fiscal 2018, that's up from 28% in fiscal 2017 providing further evidence that the average age of vehicles continues to rise. Average tickets for these vehicles…

Thank you, sir. [Operator Instructions]. Our first question is from Brett Jordan from Jefferies.

I guess my first question is for Brett I guess and the guy is sort of new to it and obviously you've kicked the tires a little bit literally and figuratively but, we have seen a sustained trend of negative comps. But I guess we haven’t seen a full year of fiscal positive comp in five years yet you signed a contract it seems there is an option strike price that's 30% above the trading price when you came on and I think 65 bucks. So I guess could you maybe give us some quick color as to what you see as looking on the outside to change the comp trend and get your option strike price to make sense I guess quick overview what was the crystal moment to make you take the job and sign that deal.

Well, look clearly did on automotive space for a while now and as I mentioned in my comments, I'm very bullish on our industry vehicles and operation continue to grow. There's plenty of upside, I believe, in our business related to just this macro growth we're seeing it direct. Yes, I think given the fact that the Monro has tremendous scale. Given the 1,100 locations certainly positions it well and have had to do very positive things in the marketplace. As it relates to comp sales, but my orientation is going to be very focused on in-store operational excellence and marketing. And -- but I think given that orientation over the next 90 days I intend to dig in, work very close to the team, develop a roadmap going forward. Haven't been a competitor at Monro's in the marketplace I think they just have done quite well in the space they have a good reputation. I don't say those from previous businesses that I have known we've seen similar stress I think on comp sales as it relates to especially in the Northern market so I don’t believe Monro is somewhat unique in that area. But again I’m also very encouraged by the initiatives the team is already working on as it relates to technology investments and the online experience. I think investments and point-of-sale as well as the CRM investments I think those are clearly platforms that I intend to build on are an effort to drive I think organic growth on a comp store basis.

I guess Monro's term. I guess there is no real shift in the M&A strategy. I mean John commented that we are north of ten NDAs signed and you don't see pulling back on, on the growth as you familiarize yourself with the business.

So I think that's largely -- again you mentioned that the strike price or the auction price, one of the reason why I'm excited about John here is that how we're close to the nature of the business model. I mean that's a big driver of why I'm here and I've had similar experience in my days [indiscernible] but we were consolidator of the oil change segment if you will and I'm certainly I'm a big fan of that model. And I recognize that Monro has certainly has tremendous room in that area. Certainly I'm not going to slow that strategy down. I'm excited that John spoke in his pipeline here and if anything we’re look overtime to try and accelerate that at anything.

Once you take an Monro as an acquisition candidate now that you're trading at a multiple below where a lot of the deals have gone lately whether it's Precision Tune or Pep Boys or Express Oil or some of the other strategic and financial buyers that as an active behind the scenes the last couple of years.

Look, I don't know if I have a point of view on that today; certainly I think I would see the company as being undervalued at this point totally. But I recognize that my focus in the first 90 days here is to get engaged with the team, understand the business and develop the forward strategy. I think would translate into top-line growth, bottom line growth and the valuation will take care of itself.

Okay, great. I'll start with the tough questions and John I got a couple minutes late from I recall, you were talking about the regional requirements in the north and the South were off did you say how much the central states were down.

No, they’re included in the North and they certainly offset some of the positivity that we saw in the North-eastern markets.

Okay and then did the cadence of the quarter did you give the month.

I didn't. Do you want me to?

Yes please.

April plus three. May was plus one, one and June was up 20 basis points.

Okay.

And July is up a 150 basis points.

Okay. And then I guess entire comp may be that you broke this out, before I got on. I missed may be five minutes did you do units versus price because we have a little bit of price increase obviously from a couple of manufacturers.

Yes, we said that average ticket was up little over three and that sales were flat in the category so units were down about three.

Okay, great all right. Thank you very much. John you're on the fourth quarter call, right? Are you on the --

Yes -- I'm not sure yet but we'll see how the transition in that but I'm around for six months after -- after my contract is up.

Okay. We're not…

I will certainly be a part of all that Brett, but I want to make sure that Brett has room to run the business.

We'll take our next question from Rick Nelson with Stephens.

Thanks, good morning. Right like to let know it’s about the acquisition environment, some of your peers are paying big multiples Brett had mentioned that, is that pushing up seller expectations and used [indiscernible] to rethink some of the multiple that you’re willing to pay.

Yes, I guess let me take that for what we've done today here in negotiations that we have in process, it certainly hasn't changed the multiples for the acquisitions that we have gotten done including the couple that we announced this quarter. So the smaller deals no, we’ve talked about in the past that obviously prices for larger deals are being somewhat impacted by that. But as you know we bring a tremendous amount of synergies to businesses that we acquire and I think that continues to be something that the board will need to consider as we go forward and evaluate individual opportunities. We -- you've certainly seen us interested in significant opportunities and that interest is not veining at all. We still have a lot of capability to get larger deals done and a lot of interest there.

Okay. Thanks for that. Also I noticed that you had [indiscernible] used leaving retiring. Is that a position that you plan to sell?

No Craig has had a successfully 40 year career, it’s the right time for him to retire later this year and we've been building the field operations team around our Division of Vice President and we’ll continue to do that. In fact this is the structure that we’ll have right now is a structure that we had two years ago. So we will have those DVPs report directly to the CEO.

Okay. If I could ask you to times that the impact you see from Amazon pushing into the tire category and may be your relationship with TireRack? You've competed with them for a while now --

Sure.

MD [indiscernible] and discuss some of the economics there.

Yes sure. I can let -- all right let me make some comments about online tire sales. I think the first and most important thing is that you need professional stars to put tires on; it’s nice to be wanted but even nice to be needed. So we’re not going anywhere. The installations that we performed for these customers are profitable in the high margin and over 50% of those customers are new to our database and we retain them at the same rates as we retain other customers. Our average ticket on those installation customers is about $120 which compares to a net overall average ticket of $160 and again that's higher margin. Online tire sales are about mid-to-high-single-digits of tires sold in the country despite 20 years of solid competition like you said with TireRack. So it’s limited and I think it will continue to be limited even though good growth so one really important reason and that’s because we see customers needs for new tires first in our shops and that's a huge advantage, we train to that. Also relationships matter, consumers like to talk to a professional about what tires are best for them and for their family's safety. But when you look at the economic side of it, our tire prices are generally competitive with online sellers including shipping and installation we're only about 5% to 6% higher on average than leading online players like TireRack, TireBuyer and that is our top skews and within that obviously there is significant variations between zip codes and between tire lines but that’s where the average is. And we’re probably another 5% to 6% higher than Amazon and that’s a lot lower than some of the percentages that I’ve heard out there and that’s based on us looking…

Our next question comes from James Albertine with Consumer Edge.

Thank you. Congratulations to Brett, wanted to add that as well and then if I may I know John you’re going to be around for a little bit but in case we don’t get the opportunity thank you for all your work and everything you’ve done for Monro and as well to Rob Gross if he is listening, he’s been great over the years and we will miss both of you but certainly Brett thank you for the overview you provided earlier, if I may ask a follow-up to the question that previously was asked. As you’re looking at the dials and the different leverage you can pull across the portfolio and given your understanding it seems the market nationwide for service and tire centers the comp trajectory to demographics, things of that nature where if anywhere do you see the opportunity to sort of dial up whether is acquisitions or investments in technology sort of dial up Monro’s effort near-term and how should we think about sort of the ethos that you’re going to sort of bring to there, is it one where growing into new markets faster makes a lot of sense despite some distribution in efficiencies. Just want to understand kind of if there is going to be any shifting incrementally when with respect to the sort of the culture and trajectory of the company?

I think we’re just reinforcing comments we made earlier further committed to the current strategy at Monro and leveraging our vertically integrated supply chain and all the benefits that provides. So certainly add-on acquisitions in existing markets will be a priority. But also I would say and I think that's also consistent with the current company strategy, there is high desire to grow in more attractive maybe southern markets that we see a little higher growth rate in. So I think certainly as we continue to build out the M&A pipeline if you will geographic expansion around the South I think would be a key focus for me and the team as one area. As it relates to dials or levers to pull, I think as I shared before I will come and work with the team using more of the marketing operations orientation with the firm belief that we can leverage technology that creates better experiences for consumers out of store in-store and improve the post-sale experience as well. I have done a -- the tendency in the past that focus a lot on in-store conversion with product mix enhancements which would drive I think a discussion and work with the team around packaged selling the good, better, best value propositions et cetera. But until I give a much deeper understanding of the current state across store markets so I’d like to reserve, little more granular comments on that to the October calls but certainly I think those would be two areas that I’ll be focused on one on the organic side and certainly on the M&A side will be continuity play in terms of current strategy with an emphasis on looking to expand in the more attractive Southern regions.

And absolutely understand that, you don’t even there for a little bit did you have input into the updated guidance at this point?

I haven't started that company. That will be August but yes John and I, Brian team did an opportunity to go through at great length that and certainly have high degree of confidence and Brian and John’s deal on this. It kind of work through that with them as a team and I’m comfortable with the guidance as they provided but we've provided I should say and I'm certainly committed to through that guidance.

Very good and then John if I may ask one more I think I heard you on the prepared remarks talked about some of your acquisitions the 20 stores including the car ex Michigan, Illinois, Indiana 95% service, 5% tire mix did I hear that correctly.

Yes, you did. So we have to lot do that…

And as you look at the landscape for growth and maybe even using your NDA as a proxy of the landscape is it a similar mix of service in tires.

I'm sorry could you ask that again.

Yes, so as we're thinking about the acquisition landscape and your sizing up to shopping list as it were do you see a similar mix in terms of the revenue generated from service relative to tires.

Yes, definitely when you look at the NDAs collectively, they've much more represent our global retail sales mix which is, which is in that 40 ish percent tires.

Okay, well thank you again and best of luck and look forward to speaking with you again that as well.

Thank you.

Our next question comes from Matthew Fassler with Goldman Sachs.

Thanks. This is Chandni Luthra on behalf of Matt Fassler. Most of my questions have been answered so, I’m just going to very basic on stores, Could you guys provide the missing pieces of guidance are we to assume items like D&A, CapEx, interest are they all sort of consistent with what was guided in your fourth quarter.

Yes, Yes, we - the primary adjustments to the guidance were for some cost so, yes there are guidance remains very similar.

Great and then just, on the lines of the previous question in terms of the acquisitions activity so your acquisition activity was basically negligible in the first quarter and you you’re briefly talked about tax reforms and sort of there being a hold up and what your announce in 2Q is partly driven by car X. Are we to sort of assume that given, we are in a positive comp environment this year should we assume meaningfully lower acquisition activity versus a FY17. You also touched upon you know multiples sort of rerating higher with precision Autocare in a bunch of other deals out there, how should we think about the overall landscape versus, FY17 were in obviously acquisition activity was very robust.

Yes, I think we've talked about it the, the smaller acquisitions we will continue I think to make progress and maybe some of the larger deals to get rid off you late in our fiscal year so, we would still consider those that are, within the fiscal year and I think there is some opportunity there.

Our next question comes from Scott Stember with CL King.

Can maybe talk about the guidance I know that a big chunk of the reduction in guidance related to the transition expenses alongside the compound is just coming down a little bit as well to just talk about what went into that thinking I know that you said that June things paired off little bit seems to come back in July but what are you guys thinking and also you know how does that weigh versus the fact that the, the first half of the year's going up against very, very easy comparisons and then things get more difficult I guess in the back half of the year maybe just talk about that little bit.

Sure yes, I was adjusted the guidance to basically what we've run on the lower end to what we run for four months. And on the high end that reflects what I think is reasonable expectations for getting some help out of some weather after two seasons of very warm weather in the last few winters and the opportunity here for the consumer to improve in the second half of the year as they deal with some of their healthcare, some of their health care costs.

Okay. And John did you get what the traffic was for the entire company?

Yes, the traffic was, was down too.

Great, all my other questions have been answered already. Thank you.

All right.

We’ll take our next question from Carolina Jolly with Gabelli.

Thanks for taking my question. Just really briefly can you review any factor that you think affected this quarterly cadence and yes.

Specific factors that affected the quarterly cadence now I think, like we said there was we had questions about traffic coming off of the, coming off of another warm winter. I think everyone saw a little bit of improvement around the April timeframe and then some deceleration as the quarter went down. So I mean as I described even on our last quarter call, I think things are incrementally better than they were last year and certainly we're trying to do everything we can with customers to retain them and at the store level to execute on the sales side. But I'm pleased to see that while the first quarter sort of decelerated we have comps back at, at least 150 basis points in July. And I know Scott asked about the second half of the year may be being more difficult I didn’t mean to ignore that if you take a look at the back half of the year of the six months and you look at that run rate, it's not that different than the average run rate for the first half of the year. Certainly we got some help from some snow in December but we had a very difficult fourth quarter like many other businesses in our region so, when you look at the back half of the year I think, the combined comp is down for, down for something so it’s not that, that much different from, from the first half of the year apart from a bit of a different stages we ramp up one adjusted for days in the third quarter and then you know have a real opportunity was down eight and I don't view the up one as a really significant hurdle given any kind of winter weather especially I think the opportunity is significant in November.

That’s perfect. Thanks. And then secondly I guess as I expecting as G&A expense deal lower can you expand on some of the initiative. The sales initiative that you mentioned in your comments and should we kind of expect those moderate by a third quarter.

Yes, I think as I said in my prepared remarks number one we had with we have performance base pay plans to our store level and our executive management team so, those were certainly expenses we didn't have last year starting out very difficult so a big chunk of that is just our performance plan things and the job we did on margin with, is that we show up in the comps but the job we did on margin drove obviously a bunch of, a bunch of contribution which gets those guys paid. We also as I said we were focused on the sales effort and so we were out of some headcount, earlier in the year and we're currently adjusting that back so, what we see as what we need to go forward through the ready job with the customer and run the business well consistent with our with our cost focus so we’re making all the adjustments and as I said I expect that to moderate as the year goes on.

And that concludes today’s question-and-answer session. I’d like to turn the conference back over to John Van Heel for any additional or closing remarks.

Thank You all for you time this morning. In this choppy market we remain focused on driving profitable sales. At the same time our team is aggressively expanding our business and scale through acquisition, investing in technology and training that improves our operations and customer experience all [indiscernible] growth for sales and earnings growth this year and beyond. I’m extremely grateful that I’ve spent 15 years at Munro and honored to have to have the opportunity to lead this great company for the last five, working together to create opportunities for our employees and solid returns for shareholders. As always, I appreciate the support I received from colleagues and shareholders. I want to personally thank our team for their hard work, dedication and consistent execution and finally I want to congratulate Rob Gross on his retirement and thank him for his outstanding leadership and many contributions to the company over his 18-year tenure. Thanks again and have a great day.

And that concludes today’s presentation. Thank you for your participation. And you may now disconnect.